The Financial Times of London has replied in defence of its reporting on Sergei Pugachev (lead image, foreground), a Russian businessman on the run from a UK High Court conviction and two-year prison sentence.

In the Moscow evening, following yesterday’s publication on the Pugachev case, two emails were despatched, a long and a short one.

Reporter Catherine Belton (lead image, right) has sent this letter, itemizing and responding to some of the questions asked:

Thanks again for your note. I am glad to answer, in part because it is not always possible to go into as much detail as I would like in a newspaper article. Please do go ahead and publish in full. Sorry it has been a busy day.

Considerable checking of all the evidence has of course been made in the extensive reporting we’ve done on this story.

1) In the publication record you both have made, I cannot find that you have reported audit and other verification of the value Mr Pugachev claims for his assets. Why have you accepted his asset valuation without checking?

“Those assets had been valued by BDO, the international audit firm, at $3.5bn. Nomura, an investment bank, valued them at between $2.2bn and $4.2bn – more than enough to cover the roughly $1bn owed to the Central Bank.”

I have of course seen documents relating to these valuations. I have also seen copies of correspondence between an independent international bank and the Central Bank discussing how the sale of the shipyards at a fair price would not only cover debts owed to the Central Bank but also all other creditors claims.

Then there is also the coal company EPK, which held the license to the Elegestskoye coking coal field in Tuva. The Natural Resources Ministry stripped this company of its license and handed it to another outfit owned by Ruslan Baisarov, a close associate of the Chechen president, Ramzan Kadyrov. Ever since the license to the field was handed over to Baisarov in 2013, production at the coking coal field has halted completely.

Although we did not cite this valuation in the story in October 2014, or in July 2015, it was valued by Ernst and Young at $5bn, and a deal had been signed to sell the company to Igor Altushkin and Baisarov for a total consideration of more than $2.5bn. Although this deal was not completed before the license was revoked and handed for free to Mr Baisarov’s company, the value of the deal had been widely reported, and the FT has seen documents relating to this. So we were quite satisfied in reporting as we did in the stories that EPK was a multi-billion dollar asset.

I’m not going to go into the other assets that were taken without any compensation, which included substantial tracts of land near Rublyovskoye Shosse and a major construction project on Red Square.

2) In the publication record you both have made, there is no acknowledgement by either of you that the evidence verified by the UK High Court and Court of Appeal of large money transfers Mr Pugachev was making between his Moscow bank and related entities offshore occurred in a time period, 2008-2009, when you say Mr Pugachev was enjoying a close, personal and positive relationship with President Putin. Do you think Mr Putin knew of Mr Pugachev’s transfers in 2008-2009 and endorsed them out of friendship and favour?

“The claims against Mr Pugachev date back to the financial crisis. Russian officials say he siphoned Rbs28bn from Mezhprombank in 2008, shortly after it received a $1.2bn bailout by Russia’s central bank. The DIA accuses Mr Pugachev of placing $700m of those funds into the Swiss bank account of a company where his son was a director. (Mr Pugachev has said the funds stemmed from a separate commercial loan.) According to a person close to the DIA, Mezhprombank was being operated like a Ponzi scheme, with the bank issuing new loans to shell companies in order to pay off previous loans.”

“The government has alleged Mr Pugachev was behind a series of transactions that damaged the bank’s balance sheet, including the transfer of $700m in Central Bank bailout funds to an account in Switzerland controlled by his son.”

So I’m not quite sure what you mean when you say there is no acknowledgement of this. These fund transfers have also been fully disclosed by Pugachev as part of the asset disclosure process in London’s High Court in the freezing order case. Justice Rose ruled earlier this year that Pugachev’s disclosure on this was adequate and he had set out to the best of his ability what had happened to the funds. He disclosed that $250m of the $700m allegedly siphoned was returned to Mezhprombank. This has not been denied by the DIA. Indeed counsel for the DIA has told the court “it may need to give credit for the monies which were returned”. Pugachev has disclosed that the remainder of the funds were re-invested in projects later expropriated by the Russian state.

The FT has also seen copies of loan documents from VTB indicating the provenance of the $700m may have been a commercial loan made to Pugachev’s companies by VTB which has since been repaid. The FT has also referenced this.
As for your question on what we think the president was thinking when these transfers we made, then the FT does not normally report on what we “think” a president was thinking at any given time. However, we have always sought comment from the Kremlin and other officials on this story.

3) I can also find no report by either of you that Mr Pugachev benefitted from Kremlin favour and support when he received his Central Bank loan of Rb32 billion in 2008, uncollateralized; and again when the Central Bank agreed to restructure the loan in July 2010 by accepting collateral of shipyard assets at a fraction of the loan value.

At the time when Mezhprombank received the Rbs32bn uncollateralised bailout loan, the Central Bank, as you know, was engaging on a mass bailout of the banking system in the wake of the 2008 financial crisis. By February 2009, the Central Bank had issued Rbs3,500bn in collateral-free loans to banks. So I am not sure it would be correct to report here that Mezhprom was benefitting from Kremlin favour. It would be incorrect to report that there was any Kremlin favour involved when the Central Bank agreed to restructure the loan in July 2010 by accepting collateral of the shipyard assets at a fraction of the loan value as you suggest, because as you see from the asset valuations we have reported the value of the collateral was more than enough to cover the loan.

Also, other banks at the time received far greater individual bailouts that were not part of the Central Bank’s official collateral free lending programme, such as KIT Finance which received Rbs135bn.

Some observers in Moscow claim Mr Pugachev relied too much on his relationship with Mr Putin to win business favours.

So in short, I am not sure what you mean by material omissions in the publications, but would be glad to look into it further if there is anything else you want to raise.

For readers to examine Pugachev’s Dutch claim for themselves, click to open here. In the claim notice, dated last September, Pugachev describes his threefold purpose for the money-transfer schemes identified in the London court judgements, and now the target of money-laundering investigation by the Swiss authorities — “to maximize tax efficiency and protect his investments from unlawful interference by the Government. He was thus able to focus on the needs of his political constituency through his position on the Federal Council.” Pugachev reveals he took French citizenship in 2009, two years before he gave up his senate seat.

Pugachev’s lawyer in the Dutch proceeding is Edward Kehoe , a New York arbitration specialist. His company biography says he has “received abundant praise for his talented approach to international arbitration” and “drew spontaneous applause from esteemed sources for his sophistication and success in handling a number of sizable matters.” The resume doesn’t mention Pugachev’s case against Russia.

Reporter Neil Buckley (lead image, centre) replied to the criticism of his journalism on Pugachev with an attack on the morals of the critic. Buckley requested that no part of his letter be quoted. He received the following reply:

Catherine failed to inform you that immediately after she sent her first, evasive reply I sent her the attached notice of deadline. That was at 12:58 Moscow time.

I’m surprised by your claim that she sent “[REDACTED ON REQUEST]”. Her reply landed at 20:33, well after the Moscow day had ended, and also after the London day. She sent 1,277 words, not a third of your count. Even if you generously multiply the value of the words I composed, you still don’t get anywhere near your number.

If you and Catherine would like to recover and send the additional words for consideration of publication, please do because there are crucial questions of evidence, balance and judgement you have not addressed.

I appreciate you won’t be reporting what Mr Pugachev or his representatives tell you in future because you feel you aren’t expert enough to assess that case. But on the ethics of reporting on Russia, why be so shy? You lecture me on gross violations and common decency. Righteous indignation does cause hyperbole, even pug-like hissing and snuffling. But if you’re proud of your bark, why do it in the dark, behind a curtain? Why not let me quote you, and let the readers judge?